Figures released by the Nationwide this week show that a staggering 38% of property transactions in the first three months of 2015 were acquired using cash. This figure is up from 33% just 12 months ago although there has been a significant rise from 20% just a decade ago. Even though cash has always been king in the investment arena many will be surprised to learn of the growing number of cash transactions in the property market. So, what is driving this increase in cash buyers and will it continue?
It will come as no surprise to learn that many couples in retirement are looking to downsize their property with a growing number able to pay in cash after paying off what was left of any mortgage. This is a phenomenon which has been growing over the last decade or so especially with the cost of running a home as well as the ever-increasing threat of additional taxation on higher-value properties.
In many ways downsizing is a lifestyle change as opposed to a financial necessity allowing many people to free up significant cash even after acquiring their new home.
Buy to let investors
Nationwide believes that there is a growing interest in cash transactions in the UK buy to let market even though mortgage approvals recently hit a 14 month high. When you bear in mind the number of private landlords in the UK has increased from 2.3 million in 2004 up to a staggering 4.4 million in 2014, you can see the growing interest in this particular market.
There is also strong evidence to show that buy to let investors are acquiring properties using cash which avoids the delay of mortgage arrangements especially after the recent increase in the regulatory burden. Even though mortgage arrangements did recently hit a 14 month high many people are still being priced out of the market.
Will this trend continue?
It is interesting to see that the ever-increasing number of private landlords across the UK are still acquiring buy to let properties. In what is becoming something of a self-fulfilling prophecy, the more demand for rental property the more cash invested by but to let investors which pushes prices higher, pricing first-time buyers out of the market, etc. So, if you take a step back and look at the situation from a distance there is no reason to believe the trend should change in the immediate future and indeed in the longer term?
We may see a slowdown in the market as and when the current government, and future governments, finally deliver on their new house build number promises but we would not recommend holding your breath in the meantime!
The far heavier burden on mortgage lenders, the ever-increasing cost of UK property, those in retirement downsizing and buy to let investors expanding their portfolios have all led to an increase in cash property purchases. This trend is likely to continue for some time to come because there is no obvious reason why this would change and indeed what the authorities can do in the short term?